Analysts upbeat on Apple performance

Analysts across the board are raising expectations on Apple, with some predicting iTunes film subscription services to be part of the company's overall digital lifestyle plans.

By
Jonny Evans
| 27 Apr 07

Most analysts have issued a wave of stock price upgrades in reaction to Apple's financial results, though a downgrade from one analyst defied consensus.

Analysts at UBS, Prudential, Soleil, Goldman Sachs, JMP Securities, American Technology Research and ThinkEquity all issued positive comment on the stock.

Analyst Richard Gardner at Citigroup was a little more downbeat, reducing his assessment on the stock to 'Hold' from 'Buy' and reducing his Q3 estimates on the firm to to $5.1 billion from $5.6 billion.

"While we continue to like Apple's long-term growth opportunity, we see little more than market returns in the shares from current levels,'' he told clients.

Jonathan Hoopes over at ThinkEquity was far more upbeat, despite the delay of Mac OS X 10.5 until October and some confusion as to why Apple has introduced a new way of accounting for iPhone and Apple TV sales, he chose to upgrade his target price to $130 per share.

Hoopes did note a slight cooling in iPod sales, writing: "It happened. iPod revenues reversed a 17-quarter trend and posted minus 1 per cent year-on-year growth. With prospects and the inevitability of slowing iPod momentum, they took Apple shares down 28 per cent to a calendar year low of $50.67 in mid-July."

He reflected, "Investors had become accustomed to 11 quarters of triple-digit iPod unit growth and it was difficult to fathom an Apple without them. With iPods at 'only' 32 per cent of revenues in Q2, thereal earnings power generator stepped forward. Apple is a CPU marketshare gain story, and this is driving margin expansion."

Hoopes also observed that one out of every 78 visitors to an Apple retail store leave the shop with a new Mac, and that half of these Mac buyers were new to the platform.

Analysts at UBS raised earnings estimates for Appole across 2008, and raised their target price on the stock from $124 to $133 per share.

"Mac units of 1.517 million beat our estimate of 1.495 million with the upside driven by strong desktop sales," UBS analyst Ben Reitzes said. "We believe Macs will continue to have solid momentum through fiscal year 2008 as the Multiplier Effect continues."

"Results were remarkably balanced, with both iPod and Mac stronger than expected, even as Apple gets ready to head into its next platform introduction – iPhone," Goldman Sachs analyst David Bailey told clients. He maintained his 'Buy' rating on the stock, but stuck to his existing $110 target price.

Analyst Ingrid Ebeling at JMP Securities also repeated his "market outperform" rating on Apple, and raised target price on the stock from $100 to $112 per share. Ebeling noted healthy Mac and iPod sales for what is traditionally Apple's slowest quarter, which ended 31 March.

Perhaps the most bullish response came from Shaw Wu at American Technology Research, who raised his Apple target to $145 per share, noting Apple's continued ability to "surprise and innovate".

"We believe Apple's surprising use of subscription accounting for iPhone and Apple TV is a sign of things to come. In our analysis, we envision Apple entering the subscription services business in a bigger way with music, TV, movie, and video game content, truly becoming the only vertically integrated play and one-stop shop for hardware, software, and services for the digital lifestyle. We would take advantage of any potential weakness in Apple shares," he told clients in a note last night.

Wu predicts that Apple will eventually compete with companies like Netflix and Blockbuster "in a bigger way", he wrote, calling Apple "one of the strongest fundamental stories with its four-pronged vertically integrated end-to-end portfolio (Mac, iPod + iTunes, Apple TV, and iPhone)."

Bullish recommendations also came from Deutsche Bank and Piper Jaffray saw both those analysts separately raise their Apple stock target price to $140.

Meanwhile, the analysts at Prudential repeated their "overweight" rating on Apple, raising their target price from $110 to $115 per share.

Analysts at Soleil also repeated their "buy" rating and raised their target price from $115 to $125 per share.

Apple stock is currently trading at $98.84, with slight devaluation on the pre-market (now at $98.47).